Alpha Teknova, Inc.: Form 10-Q for the period ended Jun 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and related notes thereto included in Part I, Item I of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto for the year ended December 31, 2023, included in the 2023 Annual Report on Form 10-K (the 2023 Annual Report on Form 10-K) filed on March 27, 2024, with the Securities and Exchange Commission (SEC). For a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q, you should review the risk factors identified in Part I, Item 1A, Risk Factors, of our 2023 Annual Report on Form 10-K and in Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q.

As in Item 1. of this Quarterly Report on Form 10-Q, in this Item 2, unless the context otherwise requires, the terms “Teknova,” the “Company,” “we,” “us,” and “our” refer to Alpha Teknova, Inc.

Overview

Since our founding in 1996, we have been producing critical reagents for the discovery, development, and commercialization of novel therapies, vaccines, and molecular diagnostics. Our more than 2,500 active customers span the entire continuum of the life sciences market, including leading pharmaceutical and biotechnology companies, contract development and manufacturing organizations, in vitro diagnostics franchises, and academic and government research institutions. Our Company is built around our knowledge, methods, and know-how in our proprietary manufacturing processes, which are highly adaptable and configurable. These proprietary processes enable us to manufacture and deliver high-quality, custom, made-to-order products with short turnaround times and at scale, across all stages of our customers’ product development, from early research through commercialization.

We have two primary product categories: Lab Essentials and Clinical Solutions. We offer three primary product types: (i) pre-poured media plates for cell growth and cloning; (ii) liquid cell culture media and supplements for cellular expansion; and (iii) molecular biology reagents for sample manipulation, resuspension, and purification. Our liquid cell culture media and supplements and molecular biology reagents are available in both of our two product categories; pre-poured media plates are available in our Lab Essentials category only.

We are ISO 13485:2016 certified, enabling us to manufacture products for use in diagnostic and therapeutic applications. Our certification allows us to offer solutions across the entire customer product development workflow, supporting our customers’ need for materials in greater volume and that meet increasingly stringent quality requirements as they scale from research to commercialization.

We manufacture our products at our Hollister, California, headquarters and stock inventory of raw materials, components, and finished goods at that campus. We rely on a limited number of suppliers for certain raw materials, and we have no long-term supply arrangements with our suppliers, as we order on a purchase order basis. We ship our products directly from our warehouse in Hollister, California, to our customers and distributors, generally pursuant to purchase orders. We typically recognize revenue when products are shipped.

We generated revenue of $9.6 million during the three months ended June 30, 2024, which represents a decrease of $1.9 million compared to revenue of $11.5 million during the three months ended June 30, 2023. For the three months ended June 30, 2024 and 2023, only 4.0% and 3.9%, respectively, of our revenue was generated from customers located outside of the United States. We generated revenue of $18.9 million during the six months ended June 30, 2024, which represents a decrease of $1.7 million compared to revenue of $20.6 million during the six months ended June 30, 2023. Excluding revenue of $2.7 million from a single large Clinical Solutions order that was delivered during the three and six months ended June 30, 2023, total revenue was up 9% and 5% for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, respectively. For the six months ended June 30, 2024 and 2023, only 4.3% and 4.1%, respectively, of our revenue was generated from customers located outside of the United States. Our sales outside of the United States are denominated in U.S. Dollars.

We had an operating loss of $5.1 million during the three months ended June 30, 2024, compared to an operating loss of $7.0 million during the three months ended June 30, 2023. We had an operating loss of $13.1 million during the six months ended June 30, 2024, compared to an operating loss of $15.9 million during the six months ended June 30, 2023. While our expenses may fluctuate over the short term, we expect our expenses will continue to increase in future periods, but at a slower rate, in connection with our ongoing activities as we:

• attract, hire, and retain qualified personnel;
• invest in processes and infrastructure to improve operating efficiency and expand capacity at our facilities, including the ramp up of our new, state-of-the-art manufacturing, warehouse, and distribution facilities; and
• build our brand and market, and sell our products and services.

Impact of Broader Economic Trends on Our Business

We are closely monitoring economic uncertainty in the U.S. and abroad. General inflation in the U.S. has risen to levels not experienced in recent decades. General inflation, including rising prices for our raw materials and other inputs, as well as rising salaries and other expenses, negatively impact our business by increasing our cost of sales and operating expenses. In addition, the U.S. Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation. Inflation, together with increased interest rates, may cause our customers to reduce, delay, or cancel orders for our goods and services, thereby causing a decrease in or change in timing of sales of our products and services. We cannot predict the impact of future inflation and interest rate increases on the results of our operations. For further information regarding the impact of these economic factors on the Company, please see the risk factors identified in Part I, Item 1A, Risk Factors, of our 2023 Annual Report on Form 10-K.

Results of Operations

Comparison of the Three Months Ended June 30, 2024, and Three Months Ended June 30, 2023

The following tables set forth our results of operations for the three months ended June 30, 2024 and 2023 (dollars in thousands):

Revenue

Our revenue disaggregated by product category for the three months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

Total revenue was $9.6 million and $11.5 million for the three months ended June 30, 2024 and 2023, respectively. Excluding revenue of $2.7 million from a single large Clinical Solutions order that was delivered during the three months ended June 30, 2023, total revenue was up 9% and Clinical Solutions revenue was up 66%.

Lab Essentials revenue was $7.6 million in each of the three months ended June 30, 2024 and 2023. Lab Essentials revenue was consistent as an increase in number of customers was offset by a similar decline in average revenue per customer.

Clinical Solutions revenue was $1.6 million for the three months ended June 30, 2024, a decrease of $2.1 million, or 57.2%, compared to $3.7 million for the three months ended June 30, 2023. The decrease in Clinical Solutions revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers.

Our revenue disaggregated by geographic region, for the three months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

Revenue from U.S. sales was $9.2 million and $11.1 million for the three months ended June 30, 2024 and 2023, respectively. Revenue from U.S. sales as a percentage of our total revenue was consistent period over period, representing 96.0% and 96.1% of our total revenue during the three months ended June 30, 2024 and 2023, respectively.

Revenue from international sales was $0.4 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively. Revenue from international sales as a percentage of our total revenue was also consistent, representing 4.0% and 3.9% of our total revenue during the three months ended June 30, 2024 and 2023, respectively.

Gross profit

Our gross profit for the three months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

Gross profit percentage was 29.2% and 43.9% for the three months ended June 30, 2024 and 2023, respectively. The decrease in gross profit percentage was primarily driven by lower Clinical Solutions revenue and increased overhead costs, largely depreciation expense following the completion of our new manufacturing facility in the prior year, partially offset by reduced headcount.

Operating expenses

Our operating expenses for the three months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

Research and development expenses were $0.7 million and $1.5 million for the three months ended June 30, 2024 and 2023, respectively. The decrease was primarily driven by reduced headcount and supplies expense.

Sales and marketing expenses were $1.5 million and $2.2 million for the three months ended June 30, 2024 and 2023, respectively. The decrease was primarily driven by reduced headcount.

General and administrative expenses were $5.5 million and $5.9 million for the three months ended June 30, 2024 and 2023, respectively. The decrease was driven by reduced headcount and spending, primarily on professional fees, partially offset by increased facility costs.

Amortization of intangible assets was consistent at $0.3 million for each of the three months ended June 30, 2024 and 2023.

We incurred a $2.2 million impairment charge related to long-lived assets for the three months ended June 30, 2023, with no comparable charges for the three months ended June 30, 2024. Refer to “Notes to Financial Statements—Note 6—Property, Plant, and Equipment, Net,” in our 2023 Annual Report on Form 10-K for details regarding the impairment.

Other expenses, net

Our other expenses, net for the three months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

Total other expenses, net was $0.3 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively. The increase in total other expenses, net was primarily due to lower amounts of interest capitalized. Additionally, interest expense was lower due to a lower debt balance outstanding despite higher interest rates, partially offset by lower interest income earned on short-term liquid investments. Capitalized interest costs were zero and $0.3 million for the three months ended June 30, 2024 and 2023, respectively.

(Benefit from) provision for income taxes

Our (benefit from) and provision for income taxes for the three months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

Our benefit from income taxes was not significant for the three months ended June 30, 2024, and our provision for income taxes was not significant for the three months ended June 30, 2023. The effective tax rates for the three months ended June 30, 2024 and 2023 were 0.1% and (0.2)%, respectively. The effective tax rates differ from the federal statutory rate primarily due to operating losses not expected to produce an income tax benefit.

Comparison of the Six Months Ended June 30, 2024, and Six Months Ended June 30, 2023

The following tables set forth our results of operations for the six months ended June 30, 2024 and 2023 (dollars in thousands):

Revenue

Our revenue disaggregated by product category for the six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

Total revenue was $18.9 million and $20.6 million for the six months ended June 30, 2024 and 2023, respectively. Excluding revenue of $2.7 million from a single large Clinical Solutions order that was delivered during the six months ended June 30, 2023, total revenue was up 5% and Clinical Solutions revenue was up 29%.

Lab Essentials revenue was $14.9 million for the six months ended June 30, 2024, an increase of $0.1 million, or 0.4%, compared to $14.8 million for the six months ended June 30, 2023. Lab Essentials revenue was consistent as the increase in number of customers was offset by a similar decline in average revenue per customer.

Clinical Solutions revenue was $3.3 million for the six months ended June 30, 2024, a decrease of $2.0 million, or 37.6%, compared to $5.3 million for the six months ended June 30, 2023. The decrease in Clinical Solutions revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers.

Our revenue disaggregated by geographic region, for the six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

25

Revenue from U.S. sales was $18.1 million and $19.8 million for the six months ended June 30, 2024 and 2023, respectively. Revenue from U.S. sales as a percentage of our total revenue was consistent period over period, representing 95.7% and 95.9% of our total revenue during the six months ended June 30, 2024 and 2023, respectively.

Revenue from international sales was $0.8 million in each of the six months ended June 30, 2024 and 2023. Revenue from international sales as a percentage of our total revenue was also consistent, representing 4.3% and 4.1% of our total revenue during the six months ended June 30, 2024 and 2023, respectively.

Gross profit

Our gross profit for the six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

Gross profit percentage was 26.5% and 36.3% for the six months ended June 30, 2024 and 2023, respectively. The decrease in gross profit percentage was primarily driven by lower Clinical Solutions revenue and increased overhead costs, largely depreciation expense following the completion of our new manufacturing facility in the prior year, partially offset by reduced headcount.

Operating expenses

Our operating expenses for the six months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

Research and development expenses were $1.5 million and $2.9 million for the six months ended June 30, 2024 and 2023, respectively. The decrease was primarily driven by reduced headcount and supplies expense.

Sales and marketing expenses were $3.1 million and $4.5 million for the six months ended June 30, 2024 and 2023, respectively. The decrease was primarily driven by reduced headcount.

General and administrative expenses were $12.9 million and $13.3 million for the six months ended June 30, 2024 and 2023, respectively. Excluding the one-time, non-recurring charges related to the reduction in workforce of $1.3 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively, general and administrative expenses decreased $1.0 million. The decrease was driven by reduced headcount and spending, primarily on professional fees and insurance, partially offset by increased stock-based compensation expense related to the stock option repricing as well as facility costs. See “Notes to Financial Statements—Note 12. Stock-Based Compensation” for a more detailed discussion of the stock option repricing.

Amortization of intangible assets was consistent at $0.6 million for each of the six months ended June 30, 2024 and 2023.

We incurred a $2.2 million impairment charge related to long-lived assets for the six months ended June 30, 2023, with no comparable charges for the six months ended June 30, 2024. Refer to “Notes to Financial Statements—Note 6—Property, Plant, and Equipment, Net,” in our 2023 Annual Report on Form 10-K for details regarding the impairment.

Other expenses, net

Our other expenses, net for the six months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

Total other expenses, net was $0.4 million and not significant for the six months ended June 30, 2024 and 2023, respectively. The increase in total other expenses, net was primarily due to lower interest capitalized. Additionally, interest expense was lower due to a lower debt balance outstanding despite higher interest rates, partially offset by lower interest income earned on short-term liquid investments. Capitalized interest costs were zero and $0.9 million for the six months ended June 30, 2024 and 2023, respectively.

Benefit from income taxes

Our benefit from income taxes for the six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

Our benefit from income taxes was not significant in either of the six months ended June 30, 2024 and 2023. The effective tax rates for the six months ended June 30, 2024 and 2023 were 0.3% and 0.0%, respectively. The effective tax rates differ from the federal statutory rate primarily due to operating losses not expected to produce an income tax benefit.

Liquidity and Capital Resources

The primary sources of financing for our operations were our (i) initial public offering, which we completed in June 2021 (IPO) and resulted in net proceeds to us of $99.1 million, (ii) registered direct offering and concurrent private placement completed in September 2023 (collectively, the September 2023 Offerings), which resulted in aggregate gross proceeds of $22.9 million before deducting offering expenses of $0.4 million and the prepayment of $10.0 million owed under the Term Loan as discussed below, and (iii) private placement completed in July 2024 (the July 2024 Offering), which resulted in aggregate gross proceeds of $15.4 million before deducting offering expenses payable by the Company.

To facilitate our expected growth, we have used our sources of liquidity to make investments to expand our operations and increase capacity, and may continue to do so in the future. In particular, we have completed the build out of our new manufacturing facility and have made improvements to our warehouse and distribution facilities, all located in Hollister, California.

Our principal liquidity requirements are to fund our operations and capital expenditures. During the three and six months ended June 30, 2024, we incurred net losses of $5.4 million and $13.5 million, respectively. In addition, as of June 30, 2024, we had an accumulated deficit of $105.2 million and $12.1 million in borrowings outstanding under our Term Loan (defined below). As of June 30, 2024, we had $27.9 million of working capital, which included $18.6 million in cash and cash equivalents.

As of June 30, 2024, we had an outstanding principal amount of $12.1 million under a senior secured term loan (the Term Loan) pursuant to Amendment No. 5 to our Credit Agreement with MidCap Financial Trust (MidCap). On March 8, 2024, we entered into limited waivers and amendments (collectively Amendment No. 5, or, as amended, the Amended Credit Agreement) which includes a waiver from MidCap of the revenue covenant violations for each of the periods ending November 30, 2023 and January 31, 2024. Amendment No. 5 also reduced the revenue covenants for future periods up to and including for the twelve months ending December 31, 2024, from $42.0 million to $34.0 million. Amendment No. 5 also removed those requirements for the periods ending January 31, 2025 through December 31, 2025, instead requiring that for each applicable twelve-month period ending after December 31, 2024, the Company’s minimum net revenue requirement will be determined by MidCap in its reasonable discretion in consultation with the Company’s senior management and based on financial statements and projections delivered to MidCap in accordance with the financial reporting requirements in the Amended Credit Agreement, so long as the minimum net revenue requirements for those periods shall not be less than the greater of (x) the applicable minimum net revenue requirement for the twelve-month period ending on the last day of the immediately preceding month and (y) $34.0 million. In addition, Amendment No. 5 also removed the advance rate for finished goods inventory in the determination of the borrowing base for the Revolving Loan and increased the minimum cash requirement from $9.0 million to $10.0 million. Finally, Amendment No. 5 conditions the next borrowing under the Revolving Loan on the Company achieving net revenue for the preceding twelve-month period of at least $38.0 million down from $45.0 million. See

“Notes to Financial Statements—Note 10—Long-term Debt, Net,” for a more detailed discussion of the material terms of our Amended Credit Agreement.

We were in compliance with our financial covenants under the terms of the Amended Credit Agreement as of June 30, 2024. As a result of recent business improvements and actions taken by management in the current fiscal year to amend our credit agreement, reduce operating costs, and raise additional capital, management believes that there is no longer substantial doubt about our ability to continue as a going concern for the twelve-month period following the date on which the accompanying unaudited financial statements are being issued. However, debt service requirements in the future require that we continue to execute our plans both in terms of operations and financial results. Additionally, unforeseen events or changes in assumptions may occur and result in material differences between our future financial results or forecasts and the current financial forecast, and those differences could result in management concluding in the future that there is substantial doubt about our ability to continue as a going concern based upon the new information.

We also have an ATM Facility under which we may offer and sell, from time to time, shares of our common stock having aggregate gross proceeds of up to $50.0 million. We will pay a commission of up to 3.0% of gross sales proceeds of any common stock sold under the ATM Facility. The aggregate market value of shares eligible for sale under the ATM Facility will be subject to the limitations of General Instruction I.B.6 of Form S-3, to the extent required under such instruction. See “Notes to Financial Statements—Note 11—Stockholder’s Equity,” for a more detailed discussion of the material terms of our ATM Facility.

As of June 30, 2024, our material cash requirements from known contractual obligations and commitments relate primarily to operating leases for our office, manufacturing, warehouse, and distribution facilities. See “Notes to Financial Statements—Note 7—Leases,” for a discussion of our lease obligations reflected on our balance sheet.

The following table sets forth, for the periods indicated, net cash flows used in operating activities, used in investing activities, and used in financing activities (in thousands):

Operating Activities

Net cash used in operating activities consists primarily of net loss adjusted for certain non-cash items (including depreciation and amortization, bad debt expense, deferred taxes, loss on disposal of property, plant, and equipment, inventory reserve, amortization of debt issuance costs, and stock-based compensation expense), and the effect of changes in working capital and other activities.

Net cash used in operating activities was $9.4 million for the six months ended June 30, 2024, which primarily consisted of net loss of $13.5 million plus net adjustments for non-cash charges of $6.6 million, offset by net changes in operating assets and liabilities of $2.6 million. The primary non-cash adjustments to net loss included $3.3 million of depreciation and amortization, $2.1 million of stock-based compensation, and $0.9 million provision for inventory. The main drivers of the changes in operating assets and liabilities were a $1.8 million decrease in accrued liabilities, a $0.7 million increase in accounts receivable, a $0.4 million decrease in accounts payable, and a $0.3 million increase in inventories, partially offset by a $0.4 million decrease in prepaid expenses and other current assets and a $0.2 million decrease other non-current assets.

Net cash used in operating activities was $11.5 million for the six months ended June 30, 2023, which primarily consisted of net loss of $16.0 million plus net adjustments for non-cash charges of $7.0 million, offset by net changes in operating assets and liabilities of $2.5 million. The primary non-cash adjustments to net loss included $2.4 million of depreciation and amortization, $2.2 million impairment charge related to long-lived assets, $2.1 million of stock-based compensation, and $0.2 million amortization of debt financing costs. The main drivers of the changes in operating assets and liabilities were a $1.4 million decrease in accounts payable, $1.2 million decrease in accrued liabilities, $1.1 million increase in contract assets, and a $0.3 increase in accounts receivable, partially offset by a $1.0 million decrease in prepaid expenses and other current assets, a $0.2 million decrease other non-current assets, and a $0.2 million decrease in inventories.

Investing Activities

Net cash used in investing activities was $0.1 million for the six months ended June 30, 2024, which consisted of purchases of property, plant, and equipment of $0.2 million, partially offset by proceeds from the sale of certain long-lived assets of $0.1 million.

Net cash used in investing activities was $6.7 million for the six months ended June 30, 2023, which consisted of purchases of property, plant, and equipment.

Financing Activities

Net cash used in financing activities was $0.4 million for the six months ended June 30, 2024, which was primarily attributable to repayments of financed insurance premiums of $0.4 million, partially offset by proceeds of $0.1 million from the issuance of common stock under our employee stock purchase plan.

Net cash used in financing activities was $0.2 million for the six months ended June 30, 2023, which was primarily attributable to the payment of ATM Facility costs of $0.4 million, partially offset by proceeds of $0.1 million from the exercise of stock options and $0.1 million from issuance of common stock under our employee stock purchase plan.

Critical Accounting Policies and Estimates

For a discussion of our critical accounting estimates, refer to "Management's Discussion and Analysis of Results of Operations and Financial Condition" in Part II, Item 7 and the notes to our financial statements in Part II, Item 8 of our 2023 Annual Report on Form 10-K. See also Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. There have been no material changes to our critical accounting estimates since our 2023 Annual Report on Form 10-K.

Emerging Growth Company and Smaller Reporting Company

We qualify as an “emerging growth company” as defined in the JOBS Act. As long as we qualify as an emerging growth company, we may take advantage of certain exemptions from various reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include, but are not limited to:

• reduced obligations with respect to financial data, including presenting only two years of audited financial statements;
• an exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
• reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements, and registration statements; and
• exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from adopting new or revised accounting standards, and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period, which may make comparison of our financial statements with those of other public companies more difficult. We may take advantage of these reporting exemptions until we no longer qualify as an emerging growth company, or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period.

Under the JOBS Act, we will remain an emerging growth company until the earliest to occur of:

• the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more;
• the last day of our fiscal year following the fifth anniversary of the date of the closing of our IPO;
• the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and
• the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the Exchange Act) (i.e., the first day of the fiscal year after we have (i) more than $700.0 million in outstanding common equity held by our non-affiliates, measured each year on the last business day of our most recently completed second fiscal quarter, and (ii) been public for at least 12 months).

We are also a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that (i) the market value of our voting and non-voting common stock held by non-affiliates equals or exceeds $250.0 million measured on the last business day of our most recently completed second fiscal quarter, and our annual revenues are more than $100.0 million during the most recently completed fiscal year or (ii) the market value of our voting and non-voting common stock held by non-affiliates equals or exceeds $700.0 million measured on the last business day of our most recently completed second fiscal quarter.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations, or cash flows is disclosed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act for this reporting period and are not required to provide the information required under this item.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation of our disclosure controls and procedures as of June 30, 2024, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A—“Risk Factors” in the 2023 Annual Report on Form 10-K describes some of the risks and uncertainties associated with our business, which we strongly encourage you to review. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. Except as set forth below, there have been no material changes in our risk factors from those disclosed in the 2023 Annual Report on Form 10-K.

We have incurred operating losses in the past and may incur losses in the future.

We have incurred operating losses in the past, may incur operating losses in the future and may never achieve or maintain profitability. For the three and six months ended June 30, 2024, we incurred net losses of $5.4 million and $13.5 million, respectively, and during the three and six months ended June 30, 2023, we incurred net losses of $7.2 million and $16.0 million, respectively. We have incurred and will continue to incur costs in connection with legal, accounting, and other administrative expenses related to operating as a public company and we expect that our operating expenses will increase modestly with the growth of our business. Since our inception, we have financed our operations primarily through revenue from our products, the sale of our equity securities (including through our June 2021 IPO, September 2023 registered direct offering and private placements as well as our July 2024 private placements), and debt. While our revenue has generally grown over the last several years, it decreased in 2023 compared to 2022. If our revenue continues to decline or fails to grow at a rate sufficient to offset our operating expenses, we will not be able to achieve and maintain profitability in future periods. We may never be able to generate sufficient revenue to achieve or maintain profitability, and our more recent growth and historical profitability should not be considered predictive of our future performance.

A significant portion of our total outstanding shares of common stock are available for immediate resale and may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. All shares sold in our IPO were freely tradable upon such sale without restriction or further registration under the Securities Act, except for any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (Rule 144), including our directors, executive officers, and other affiliates (including Telegraph Hill Partners), which may be sold only in compliance with certain limitations. The shares of our common stock issued in the course of our September 2023 registered direct offering and private placements are now also freely tradable, subject to the same limitations applicable to our directors, executive officers, and other affiliates (including Telegraph Hill Partners). In addition, the shares of our common stock most recently issued in the course of our July 2024 private placements (discussed further below) will become freely tradable when we file a registration statement with the Securities and Exchange Commission to register those shares for resale which is expected to occur on or before August 26, 2024 pursuant to the terms of the underlying registration rights agreement.

As of June 30, 2024, we have 40,915,331 shares of common stock outstanding, substantially all of which are held by directors, executive officers, and other affiliates and will be subject to volume, manner of sale, and other limitations under Rule 144. Subsequently, on July 12, 2024, we sold 12,385,883 shares of Teknova’s common stock at an offering price of $1.24 per share. Our controlling stockholder, Telegraph Hill Partners Management Company LLC, through its affiliates Telegraph Hill Partners V, L.P. and THP V Affiliates Fund LLC, Teknova’s President and Chief Executive Officer and a member of its board of directors, Stephen Gunstream, and Teknova’s Chief Financial Officer, Matthew Lowell, participated in the offering and purchased an aggregate of 12,217,740 shares. Registration of any of these outstanding shares of common stock, which is expected to occur with the respect to the shares issued in July 2024 in August 2024, would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement.

The market price of our stock could decline if the holders of currently restricted shares of common stock sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities. In addition, shares of our common stock that are issued pursuant to our equity incentive plans and our Employee Stock Purchase Plan (ESPP) will become eligible for sale in the public market, subject to provisions relating to various vesting agreements, lock-up agreements, and Rule 144, as applicable.

As of June 30, 2024, there were 312,174, 1,529,495 and 2,313,599 shares of common stock reserved for issuance pursuant to outstanding stock option awards under the 2016 Stock Plan, as amended (2016 Plan), the 2020 Equity Incentive Plan, as amended (2020 Plan) and the 2021 Equity Incentive Plan (2021 Plan), respectively. In addition, the 2021 Plan and the ESPP provide for annual automatic increases in the number of shares reserved thereunder. As of January 1, 2024, a total of 4,825,264 and 976,045 shares of common stock were available and have been reserved for future issuance under the 2021 Plan and our ESPP, respectively. In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

We face risks arising from our recent and possible future workforce reductions, including adverse effects on employee morale, risks to our ability to meet customer demand with adequate turnaround times, and uncertainty around our ability to achieve anticipated cost savings from the workforce reductions.

During the roughly twelve-month period from February 2023 to January 2024, we undertook two strategic reductions in our workforce designed both to align the costs of our business with our near-term revenue expectations and to create operational and management-level efficiencies. These workforce reductions may result in unintended consequences, such as attrition beyond the intended number of employees, reduced morale among our remaining employees, and the loss of institutional knowledge and expertise. In addition, while we have eliminated positions, we might not successfully distribute the duties and obligations of our former employees among our remaining employees. The reductions in workforce could also make it difficult for us to pursue, or prevent us from pursuing, new opportunities and initiatives due to insufficient personnel, or require us to incur additional and unanticipated costs to hire new personnel to pursue such opportunities or initiatives.

We cannot provide assurance that we will not undertake additional workforce reductions or that we will be able to realize the cost savings and other anticipated benefits from our previous or any future workforce reductions. In addition, our previous and any future workforce reductions may adversely affect our ability to respond rapidly to any new product, growth, or revenue opportunities, to meet customer demand with adequate turnaround times, and otherwise to execute on our business plans. Additionally, reductions in workforce may make it more difficult to recruit and retain new employees. If we need to increase the size of our workforce in the future, we may encounter a competitive hiring market due to labor shortages, increased employee turnover, changes in the availability of workers, and increased wage costs.